Difficulties of succession planning
The most obvious difficulty for employers will be that there is no longer a ready-made timetable for retirement, meaning the path to senior positions could be blocked, writes David Regan, solicitor in the employment team at Mundays Solicitors.
Employers may also feel unable to ask when an employee is intending to retire, leading to unexpected retirements that leave the employer without a proven successor.
Employers may find it difficult to initiate discussions about retirement with employees. Even if they do, many employees may not take kindly to the idea that they should retire if they are not ready to do so. In addition, under the 'old' law, employees have often been allowed to continue to retirement with managers overlooking lapses in judgement or incremental changes in performance that can be attributed to an employee's age. In future, employers may be faced with the unpleasant task of performance managing long-standing, cherished employees if they are not up to task, rather than allowing them to continue with the knowledge that retirement is just around the corner.
What is a 'legitimate aim'?
Cases under the 'old law' have found legitimate aims to be workforce planning, enabling the recruitment and retention of younger employees, avoiding adverse effects on pensions and benefits, ensuring continued competence, and having an age-balanced workforce, ensuring job opportunities among the generations. However, employers will need to be careful when implementing a normal retirement age and will need to show that they have balanced the employee's rights and dignity against the needs of the business.
In practice, some employers may be happy to allow an employee to continue working for as long as they choose, and many employees will most likely want at least to reduce their hours, if not finish working completely, as they age. It is important to note that the abolition of the default retirement age has no effect upon the flexible working law that is currently in place, and employers will not be under a duty to allow older employees to work reduced hours unless they are eligible for flexible working in the usual way.
In addition to the employee relations issues highlighted above, managers must ensure that performance management processes are implemented fairly across the entire range of employees to avoid any accusations of age bias, or trying to force out the older members of staff. In addition, managers will need to watch for age-related disabilities and, if any disability is found, will need to consider whether or not any reasonable adjustments may need to be made in relation to the employee and their employment.
There are two exceptions to the abolition of the default retirement age:
- It does not affect occupational pension schemes and the setting of a normal retirement age for the purposes of occupational pension schemes.
- Employers may withdraw benefits for employees at or over the age of 65 (with the age at which withdrawal will be legal, rising in accordance with the state pension age). This exemption deals with a key concern of employers, namely that the rising costs of benefits and insurance for employees over the state pension age could make the provision of these benefits prohibitively expensive.
Controversy over the draft regulations
The draft regulations abolishing the default retirement age have now been published. They appear to make it unlawful to issue a notice of intended retirement date to someone who reaches 65 prior to 6 April 2011 where that notice expires after 6 April 2011. There has been a lot of discussion on this point by lawyers; however, we take the view that this is likely an unintended consequence of poor drafting, and that the regulations will be amended to fix this flaw prior to 6 April 2011.
The abolition of the default retirement age has the potential to have a large effect on businesses, because staff may choose to remain in their position longer, thereby hindering succession planning, and employers and managers will be forced in many cases to invoke disciplinary procedures to manage the performance of long-standing employees, with a subsequent negative effect on morale.
However, where there is clear ongoing dialogue between managers and staff, and all parties are open to sensible communication, there is no reason why employees continuing to work past the current default retirement age should prove to be a problem.
Indeed, managers may find that retaining the services of a valued, long-standing employee for a reduced number of hours during the working week may allow more junior members of staff to learn from someone who would otherwise previously have retired, and to take over their role gradually as they ease towards the date at which they intend to retire.
In addition, employers are still free to choose to set a retirement age for their business, provided that they are able to justify this.
David Regan is a solicitor in the employment team at Mundays Solicitors, a regional practice that provides advice to corporate and private clients
This was first published in March 2011